Cheq Revenue, Valuation & Funding (2024)

hello everyone my guest today is guy tetunovich he is the founder and ceo of czech which he founded in 2016 with fellow graduates of the 8200 cyber intelligence unit in the israeli army guy you ready to take us to the top i am indeed all right i want to put money in one thing i realize is you never bet against ex-israeli army folks do you guys you just there's some there's something about the program that just pumps out really smart software ceos well first of all thank you very much i would concur only not in my case i am an exception to the rule but yeah i think i think one of the things that that's so great that's made us kind of the startup nation in israel is is the fact that to a certain sense we're a post-traumatic nation um you know when we're young teenagers 18 years of age we have to go to the army and the nerds among among us go to the defense intelligence and they have to start learning stuff is that what you did and yeah i did i did i learned my journey in head can get seven years old my dad brought home a fax machine and i thought oh my god what are there small people inside the the and then shortly after 11 years after i got drafted to the defense intelligence and spent nearly a decade working on different cyber security fronts later on also natural natural language processing and yeah okay so now you're working on check so why do people have to you know validate numbers that facebook power editor is giving them in terms of their cost per click and their impression data and all that jazz that is incred an incredible question the answer is i and and it might surprise uh i think some of the viewers listeners but at the end of the day i think companies like google or facebook are extremely reliable and i don't think we need to vet their numbers what i do think however is and i think google and facebook concur is that um there is a cyber security issue revolving around ad fraud and it's a very specific and very um expertise based uh issue and like in many many different aspects other than advertising or other than ad fraud the likes of facebook and google sometimes need help and their advertisers sometimes need help in in really preventing those bad instances from happening wait so can you give me an example of like a really bad fraud case that check you know you know found across one of your customers sure so i can't go into too many specifics including names and so on and so forth but what i can tell you is that um in a lot of the cases what i used to do for the government really is similar to what i do now or to what my company does now um i'll i'll give you a small example we just one of our clients is a very big um what we call an ssp a supply side platform they monetize traffic for publishers um about a year ago we discovered a very targeted and sophisticated fraud case that was targeting specifically them at first we saw it on one side and once we were finished we saw it on around 100 sides then we needed to prove that these sides are interconnected and the aim of these sides were to generate fake clicks for that ssp interesting were all of these media i'm gonna make this up it's like uh latkamagazine.com uh you know uh latkacontentmarketing.com blah blah blah there's maybe they're it's not as obvious but they're all kind of like in the same network were they all together those companies purposely doing this or was there some bad actor targeting those media sites than to get to the supply side platform in that case it was the side owners so the sign owner the site owners banded together specifically to defraud that ssp interesting is this this is a writ so this is a real problem i mean there's these are like big schemes to do this are we talking like millions of impressions yeah we're talking about billions of impressions in that case and we saved about two million dollars per month of activity um of of revenue of wasted revenue of fraudulent revenue and at the end of the day in these cases what's also important to note is that you you you said for instance blahblah.com it's exactly that but in some cases you know it's never i would never accuse the likes of you know turner warner media et cetera of doing bad things they are um not behind those kind of things yet these sites suffer too in that case uh in that example that i just gave it's a bit of a different one because it was a bunch of small sites purposely designed and built to defraud that client of ours but in a lot of cases the big publishers also suffer from fraud we call it nuclear windfall basically obviously it's not directed by the big publishers but unfortunately they're also targeted interesting okay let's get into your business model here for a second so these folks pay you to make sure that they're getting what they think they're getting you're preventing essentially ad fraud give me a general target and you have so many different cohorts that you serve just based off your website and your pricing we don't have to go down all of them but give me like a sweet spot on average what's the company going to pay you to use your technology oh it really depends it really varies and the volumes of traffic that they would buy i'd say that a tier one um massive massive massive international advertiser think brands like the png's of the world and the unilevers of the world uh the ones that spending billions of dollars uh yearly on on digital advertising they would pay in the realm of of up to around one and a half million dollars a year okay um the large platforms that that aggregate a lot of traffic would pay slightly more than that um now is that yours are you giving me like your top two percent of your customers or is that a fair average is about a million a year no it's it's more i wish it was the average so so but it said it stopped 30 i think the average generally speaking is at around 20 000 a month okay so quarter mil a year yeah yeah okay cool and the reason i ask that is because it will affect the rest of my questions related to how you built your internal sales motions things like that so this is clearly an enterprise sales motion yeah of course so break your team down for me how many folks on the team right now and how many of them are engineers so we have around 100 um the vast majority of which are our engineers mostly in uh based in tel aviv um majority i mean like 70 or 80 of them i if i'm not mistaken around 70. yeah cool are you an engineer by train i am not a very good one but i am by training all right so 70 folks are engineers and then again let's jump over to the sales side so i imagine you probably have folks with quota how many quota carrying reps do you have uh everyone else pretty much oh uh except for maybe gna except for gna about 15 quota quota attaining the personnel so so how did look one of the things that is critical scaling a sas company especially if an inside sales team where your acvs are at your level is making sure you get your like new sales person profitability and pro formas right the onboarding time the quota targets the profitability per sales rep how did you when you hired your first sales person where did you like put a stake in the ground and how have you had to edit that stake over your first 14 hires you're jumping into conclusions that i actually put my stake under the stake in the garage i was absolutely clueless um i learned the hard way i i think maybe the best way but the hard way by failing by making mistakes and in this case as well i think at the end of the day there came a time where i understood and i think every entrepreneur especially if it's a ceo who's also the founder needs to understand is that he needs to get help from people who are whose expertise is business operations people like you um people who have done it before even multiple times so what i did is i hired the ceo of uh of a company that was sold for nearly a billion dollars to be my ceo and he really instilled all the business operations quote entertainment uh new acv methodology and so on and so on and he put this state on the ground only after i failed miserably in doing it properly um that being said i i feel that our current process is fairly robust so what do you put if there's you know i'm going to your indeed page applying for a job to work a check for your sales role you hire me on day one you're gonna say nathan just so you know like first year we expect you to hit quota of x what is it typically for if for a junior salesman that would be around half a million dollars of uh annual added acv edit edit they are over what period of time my first year annual yeah over the first year so okay and then when i get to full production what do you put me at like a million new bookings a year year two is it a million yeah okay yeah does it cap out there or do you keep accelerating it it caps out in terms of the quota and yet it it increases in terms of uh the bonus structure so the bonus structure does improve uh with tenure or seniority okay so the reason i'm asking this is every ceo i've spoken with i don't know if you're in this range or not but every ceo i've spoken with doing between like 50 150 million in arr they optimize for some amount of salesperson kind of profitability and this is a function of what their on target earnings like quota is relative to their full combat ote so what do you optimize it 5x 10x 7x what do you optimize your salesperson profitability for that is again a very good question basically we are in a 50 between uh roughly speaking it's it does vary quite drastically depending on the person and the seniority and so and so and even the vertical that he's selling to but let's say it's 50 50. uh what do you mean by that like half are 5x half or 10x no no 50 50 in terms of uh the division between commission and base and hence the profitability is usually because we don't put commission on the profitability margins it's usually 5x at the end of their profitability on on the cost of of of uh customer acquisition is extremely high and yet it's not due to the multiple um i know on the salesman ott so guy let me let me role play with you i'm a year two sales person at your company my my quota target is a million you're optimizing for a 5x return on me as a salesperson which means my fully earned quota plus base is going to be about 200k of which 100 is based and 100 as upsetting commissions if i hit quota almost almost commission would probably be higher in that case okay and also base would be a little higher but yeah okay very cool interesting to understand that so when you when you obviously sales is just one function of your fully weighted customer acquisition cost will you spend the full year acv so 250 grand up front to acquire a customer what payback do you optimize for so theoretically yeah we optimized to return uh to generate a return after nine months of the entire customer acquisition cost oh that's great nine month payback right now yeah well that's what we optimized for we actually surpassed it i i think that there comes a time at scale where obviously the sales funnel is very different for each vertical or for each type of client for each size of plant and so on and so forth in our case um we are predominantly targeting very big clients with very high with sorry very long sales funnels um sometimes there are also very costly so in so i'd say that nine months is a non-representative average that being said we do optimize for nine months so you're saying you're better across your courts right now you're saying you're more fit you're you're getting a payback in six five four months something like that yeah i'd say seven but yeah i think again i think it's not representative i think that uh if we hit our goals this year then uh well if we hit our goals next year then very likely it would pan out to be at around nine months okay fair enough all right and then put this stuff on a timeline for me so you're obviously in the defense department in israeli uh israeli uh military uh what you'd write the first line of code for this for check probably [Music] first line of code so this is late 2015 early 2016. and first dollar of revenue was when uh a year and a half ago 18 months ago okay so call it call it 2018 or 2017. it's still 2017. unfortunately for my business so do you do you remember how much you spent on your mvp before your first dollar revenue like cash out the door we have of course unfortunately of course i did how much was it so again you you need to be mindful that uh we did almost all of our development uh between the entrepreneurs and back then we weren't so it's a lot of sweat equity just but what was the cash out of the dollars the cash at the door at the end of the day was around uh for the mvp again was around 750 000 wow so okay so the israeli defense pays a lot of money right you must admit you were rich uh yeah okay in israel in terms of billionaire yeah where did you know in all seriousness though i mean how did you fund that early capital did you raise on day one or what i yeah i started the company with two great uh founders one of them is my chief technology officer who's my best friend since we were six years old and the other is my chairman uh and my chairman put in the seed money i see okay and how much total raise to date around 30 30 30. so much delusion guy you had to raise all that money oh no no no no no delusion at all they tell me that the ending oh my god yeah it's the bigger pie guy don't worry about it it's gonna be a two billion dollar exit it doesn't matter two billion why why the insult way more than that i love the ambition okay so first customer was 2017 2018 how many are you now serving today i'm not at liberty to say but i can but what i can say is it's between 100 and 150. okay fair enough so 100 minimum up to 150 and then again this is a split between i think you say kind of supply side folks uh and then i mean what you're also probably selling to agencies publishers platforms brands all of them right yeah predominantly predominantly the demand side so predominantly agencies and advertisers um i'd say the second kind of layer of of of customers comes from the platform side of things both on the demand side and on the supply side and then we do some work with the supply side as well being the publishers rarely do i see someone with your kind of story where arr is more than funding raised so i think i have a number wrong here a hundred customers minimum at that arpu you told me earlier 20 grand a month would put you at 2 million a month right now in revenue uh is that accurate or generally accurate no the the average is not representative so that is the median average yeah okay that doesn't make sense um so basically basically what i'm saying is that at the end of the day the the 20 huge customers we calculate them differently to calculate the average the average client is not for us is not a division between the total revenue and the amount of clients um but yeah we're you're not that far off when you i guess let me just i'll change my question when do you think you'll break to a month do you think you can do that this year or it's going to take until next year as in break even monthly no no when you think you're going to break 2 million in mrr we've already did that oh okay so you're so you are north of what i just said yeah oh okay that's fine that's okay by the way it's higher than what i would expected so look i mean you're in a great position then i mean i i think an entrepreneur in your case anywhere where you know if you can keep essentially your your arr about equal to your total funding you're in a good leveraged position so so you must be raising capital right now i'm actually not because of that wonderful d word that you mentioned but uh no in all seriousness i think uh you know when i'm a bit obsessive about everything i do especially if it's work related and and i've been obsessing about the sentence that sometimes that someone once told me you know when's a good time to raise capital always um so with that in mind i am to say i mean we just finished raising our b rounds oh okay when was that we haven't announced it yet oh okay very good literally literally breaking news folks there you have it guy you just you just like me so much you give me the insider news before it's out exactly i was going to say i'm looking at crunchbase and my other my research team has only five million in the company in a series a in june of 2018 so that mean from battery which means you must have just raised call it 25 about a month or two ago did battery lead or did they sit out there about it and yeah battery life oh very good well that's obviously a very strong and good sign to have congratulations thank you very much all right a couple other things here before we wrap up so you're north of two uh a month today i mean year over year growth rate i mean were you half that a year ago where were you in terms of mr about a year ago do you remember way less than half yeah the growth has been i again i can't go into too many specifics but the growth has been can you say it was you know can you say it's definitely north of x is that fair could you just put a floor on it oh the growth has been way more than 200 oh i mean okay great that's good all right good so so um less than a million dollars a month a year ago more than two million dollars a month today uh raised an additional round of capital when you raise capital kind of in terms of where you're at today how many months obviously you're going to say we're going to hire these many people and our tax is going to change and our ac is going to change but you're obviously looking at burn and you're buying yourself runway how many months do you do i mean did you raise for basically when you look at your forecasted burn considering the the actual burn rate and and where we are in terms of profitability uh there this is again i can go into specific but this is very significant runway um but you'll scale i mean i imagine when you went into this next round of fun because you're a smart guy you try to be as close to break even as possible so you could tell the investors listen we don't need the money give me a better valuation otherwise we're not going to raise exactly so but you're not going to raise that money and take the dilution unless you have plans to spend it so you're going to grow burn i think here shortly my question is just basically without a doubt yeah yeah when you look at that if everything goes according to plan we've uh buy ourselves around three years of runway i see okay so so you you will basically won't take your i mean three years of runway right so you take 26 million divided by 36 months it's like 700 grand a month you basically won't drive burn any higher than about 700 grand a month as you look to deploy the capital you just raised always by the way always that's my rule that that is literally the number what 36 no well yeah 36 months but also 700 oh yeah that's good math right that's pretty quick yeah it took me way more time than it's just to queue you are you looking for a jab name no no i'm i would you would fire me in about two seconds all right so i seriously doubt all right so you're growing the company this is all great stuff last question here before we wrap up turns critical in a sas company i'm hoping you tell me your net revenue attention is way north of 100 but peel the onion for me what's gross churn what's expansion net negative return is is basically zero i think that to be fair we're a very young company with very long sas contracts so in all fairness whilst i i think our clients are uh in love with us and and with our product they hadn't had the time to churn out yet um so yeah so but if you look at like let's say a year ago you were doing 700 grand a month right you said less than a million right let of that cohort what percent of that revenue like either downgraded or or churned completely none of it so you have zero percent gross revenue churn yeah again we do a good job but it's not because of the good job that we do it's because of the minimum term of the cut of the contract which is something that i would very what's your minimum two like you're talking two three years yeah our minimum is two years but most of our contracts are for more than that okay interesting so let me ask you a question that can actually be very dangerous and i'll tell you why i've seen a lot of companies get stuck in something here if you don't create an excuse right to have a conversation to drive expansion revenue at least quarterly you really cut your aes off in terms of driving expansion because you only have that opportunity every three years so how do you manage that oh no no no we we do man we do leave room for growth basically the way we price is based on uh traffic volume tiers so the more it's a fixed monthly fee yes and a minimum commit monthly commitment across the minimum two years of course however when the client hits a a higher tier in terms of the amount of traffic that is he's purchasing with our protection um then he automatically qualifies into the next year okay so there's a variable component based off impressions but again some of the strongest upsell pricing axes that you see companies breaking 100 million in are things really like feature-based upselling multiple utility-based upselling years as number of impressions but there might be other things you know about um also like number of seats right so what about those other components that are not baked into your contracts we're you're absolutely right we're now uh doing a very very very um uh aggressive process into acquiring these additional um components into our uh metrics got it okay and then when you look at just that variable yeah when you look at just the variable component that you've had so far right just driving base growth based off number impressions growth our accounts on average expanding are you turning like five percent annually 10 annually or more aggressively more aggressively we're talking about around thirty percent annually oh wow okay so net revenue retention then caught 130 percent something like that something around that that's pretty healthy stuff guy all right man let's wrap up here with the famous five number one favorite business book nathan les lefkas uh a millionaire at 29 something like that how to be a capitalist without anything i just said you don't have to you don't have to cater to me i've already been tough on you it doesn't get easier from from here on out yeah all right number two number two um is there a ceo you're following or studying yeah but unfortunately i have a very very corny answer here jeff bezos i think everything he touches turns into gold i think uh in terms of creative thinking unbelievable number three what's your favorite online tool for building your company [Music] it's another i i wish i you asked me stuff that i didn't have corny questions to but basically asana okay number four how many hours of sleep you get every night around four dang okay how old are you 34. and what's your situation married single kids married one baby daughter eight months old okay contributes yes yeah that explains you have two startups um all right exactly last question what do you wish your 20 year old self knew huh that is all good guys check dot ai helping folks make sure they are getting what they're paying for in the ad tech world they've got over 100 enterprise customers paying north of 20 grand a month uh on average again obviously power laws at play there but north of two million dollars a month in revenue less than a million dollars a month a year ago so north of 200 year-over-year growth rate 30 million dollars raised to date again 25 just fresh about a month ago 100 folks on the team 70 engineers 15 quota carrying sales reps the optimize for about five x sales person profitability 130 net revenue retention seven month payback period as they're requiring new customers to scale guy thank you so much for taking us to the top nathan it was a pleasure thank you so much